One such change that may arise is with “make good” obligations, whereby commercial tenants are required to return their premises to a “base building condition or open plan configuration”.

Speaking to Lawyers Weekly, Kernel Property director Paul Mead explained that make good obligations have traditionally favoured landlords and that returning the premises to their pre-lease conditions can be a costly and timely exercise for any business.

However, in the current climate, “[cost-saving] measures should be fully investigated by the leadership team and responsible measures undertaken”, he argued.

“In the process of exiting a premise, a well-planned exit strategy will provide the firm with significant savings, minimising unnecessary costs to the firm. We have seen the money saved in resolving the make good obligations better spent on staff retention and increasing project budgets for new premises [fit-out] projects,” he said.

“For a new lease deal, with the market now strongly in favour of tenants, now is the opportunity to have make good clauses reduced or struck out completely of the new premises lease, reducing the lease end costs in advance.”

By carefully reviewing make good obligations far in advance, Mr Mead submitted, there will be numerous positive outcomes for law firms.

“Rather than using an assumption for the cost of make good, if the reduced costs are known this can have a significant positive impact on financial analysis of stay [vs] go premises relocation assessments,” he suggested.

VIEW ALL

“In addition, money not wasted on make good can be reallocated early on in the design process to bolster project budgets, which in the current environment, could otherwise be struggling or falling short.”

There is a “significant amount of material waste” involved in the current make good process, he noted, adding there are ways that law firms can improve the situation for themselves.

“From encouraging tenants to always start a relocation project by focusing hard on what will be [reused] first, then ensuring as much furniture and material [are] sold or passed on to other tenants before items become considered waste,” Mr Mead outlined.

“There are several industry guides available to encourage reclaiming, reuse and recycling before [the] material becomes waste. When considered well in advance, it is relatively easy to reduce waste. When left to the last minute it becomes almost impossible.”

Conversely, law firms would have to consider that if make good liabilities are ignored until the last minute, there is “very little leverage that can be created to challenge the liabilities”.

“The firm will end up spending a significant amount of money unnecessarily, handing over a very large cheque to a very happy landlord,” he surmised.

“Preparedness and leverage [are] critical.”

Moving forward, law firms should fully review their lease in relation to their make good liabilities “well in advance of the lease expiry date”, Mr Mead advised.

“Consider engaging a specialist to review the obligations with you. There are many factors that need to be taken [into] consideration with the aim of reducing the scope of works other than the straight definition of the lease, the use of relevant state legislation and case law,” he said.

“Those factors differ from state to state, city to city and landlord to landlord.”

Two other directors from Kernel Property, Kai Schindlmayr and Holly Bailey, recently spoke on The Lawyers Weekly Show about how flexibility, adaptability and affordability will be prominent features of leasing arrangements for law firms nationwide post-pandemic. To listen to that episode, click here.